Akseli Kordelin Iiro Salminen
ADAPTING A SERVICE CONCEPT TO THE NEEDS OF INTERNATIONAL COMPANIES
Mr. Jones Bar & Kitchen
School of Business, Rauma
Degree Programme in International Business and Marketing Logistics 2007
ABSTRACT
ADAPTING A SERVICE CONCEPT TO THE NEEDS OF INTERNATIONAL COMPANIES: Restaurant business in Rauma
Akseli Kordelin & Iiro Salminen
Satakunta University of Applied Sciences School of Business Rauma
Degree Programme in International Business and Marketing Logistics April 2007
Supervisor: Timo Kaartinen Mr. Jones Bar & Kitchen
Key words: International companies, Marketing Plan, Adapting a services concept.
This bachelor’s thesis focuses on how a company in Rauma, like Mr. Jones Bar &
Kitchen, can adapt their service concept to the needs of international guests. The purpose of the study is to create a marketing plan for the new facilities downstairs (Juhlakellari) of Mr. Jones Bar & Kitchen based on the needs of companies that are hosting international guests.
The content of the theoretical part will give good basis for the empirical part. The theoretical part mainly consists of creating a marketing plan and different stages of that process. These stages are creating a mission, doing the needed analysis, creating marketing strategy, planning the marketing mix and deciding the control methods.
Theoretical part also includes: product adaptation and cultural differences in marketing.
The empirical part was conducted by using a qualitative method. The interviews were done with a face-to-face, semi structured theme interview. The empirical part was done based on the results of these interviews conducted the ten biggest international companies in the Rauma area. The interviews gave knowledge of who are the main competitors of Mr. Jones Bar & Kitchen, how often the companies would need services of an outside service provider, would they be interested in Mr.
Jones Bar & Kitchen services and what are the key factors behind on the decisions of selecting the service provider.
The results of this research indicate that there is a need for the services Mr. Jones Bar
& Kitchen is offering and that the interviewed companies would be interested in their services. The interviews also showed that there is a need for a clear marketing plan, because the companies did not know about these new facilities (Juhlakellari) of Mr.
Jones Bar & Kitchen. The research showed that the most important selection criteria is that price-quality ratio is good, otherwise the price is seen as irrelevant. There was also a need for close location, good facilities and convenience and versatility of product and services. The possibility for extra services was not needed. The representatives would mainly want personal contacts and direct marketing.
TIIVISTELMÄ
PALVELUKONSEPTIN SOPEUTTAMINEN KANSAINVÄLISTEN YRITYSTEN TARPEIDEN MUKAAN: Rauman ravintola bisneksessä
Akseli Kordelin & Iiro Salminen Satakunnan Ammattikorkeakoulu Liiketalouden Rauman yksikkö
Degree Programme in International Business and Marketing Logistics Huhtikuu 2007
Ohjaaja: Timo Kaartinen Mr. Jones Bar&Kitchen
Avainsanat: Kansainväliset yritykset, markkinointisuunnitelma, palvelukonseptin mukauttaminen.
Tämä opinnäytetyö keskittyy siihen, miten raumalainen yritys, kuten Mr. Jones pystyy sopeuttamaan palvelukonseptinsa kansainvälisten vieraidensa tarpeiden mukaan. Tarkoitus oli luoda markkinointisuunnitelma Mr. Jonesin alakerrassa sijaitseville uusille tiloille (Juhlakellari) paikallisten kansainvälisiä vieraita isännöivien yritysten tarpeiden mukaan.
Teoriaosan sisältö antaa hyvän pohjan empiiriselle osalle. Teoriaosa koostuu pääosin markkinointisuunnitelman laatimisesta ja laatimisprosessin eri osista. Nämä pääosat ovat mission luominen, tarvittavien analyysien tekeminen, markkinointistrategian luominen, markkinointimixin suunnittelu, kontrollointimetodien valinta ja suunnittelu. Teoriaosuus sisältää myös tuotteen/palvelun mukauttaminen ja kulttuurierot markkinoinnissa osiot.
Empiirinen osa suoritettiin käyttämällä kvalitatiivista tutkimusmetodia. Haastattelut suoritettiin kasvotusten, puoliohjatulla teemahaastattelulla. Empiirinen osa koostettiin kymmenen isoimman kansainvälisen Raumalla sijaitsevan yrityksen haastattelujen pohjalta. Haastattelujen pohjalta selvisi: mitkä ovat Mr. Jonesin pahimmat kilpailijat, kuinka usein haastatellut yritykset tarvitsevat ulkopuolisen palvelun tarjoajan palveluja, ovatko kyseiset yritykset kiinnostuneita Mr. Jonesin palveluista ja mitkä ovat heidän pääasialliset valintaperusteensa palvelun tarjoajaa valittaessa.
Tulokset osoittivat, että Mr. Jonesin tarjoamille palveluille on selkeästi tarvetta ja haastatellut yritykset ovat kiinnostuneita Mr. Jonesin tarjoamista palveluista.
Tulokset myös osoittivat selvän tarpeen markkinointisuunnitelmalle, koska suurin osa haastateltavista yrityksistä eivät olleet tietoisia Mr. Jonesin uusien tilojen, Juhlakellarin, tarjoamista palveluista. Tuloksien perusteella tärkein valintakriteeri palvelujen tarjoajalle on hinta-laatusuhteen täsmäys. Tulokset osoittivat myös, että paikan sijainnilla, tilojen kunnolla sekä tuotteiden ja palvelujen monipuolisuudella ja vaivattomuudella on myös tärkeä osa päätöksiä tehtäessä. Ylimääräisille palveluille ei tuntunut olevan tarvetta eikä hinnalla ollut juuri merkitystä. Yrityksen edustajat haluaisivat pääasiassa henkilökohtaisia yhteydenottoja Mr. Jonesista.
ACKNOWLEGDEMENTS
First of all we would to thank our mentor and guru Timo Kaartinen, who has guided us through the entire process and he has given valuable information and guidance when ever needed.
The help of the librarian Liisa Virtanen has been an invaluable asset and she is irreplaceable to the whole school library.
We would also like to thank the staff of Mr. Jones Bar & Kitchen, Oskar Burjam, our opponents Heidi Lehtonen and Liisa Sipilä, and Hartwall.
Finally we would like to thank God. In writing this thesis we almost lost our faith, but he gave us the strength to carry on.
TABLE OF CONTENTS
ABSTRACTS
ACKNOWLEGDEMENTS
1. INTRODUCTION ... 7
2. CULTURAL DIFFERENCIES IN MARKETING ... 8
3. PRODUCT ADAPTATION ... 11
4. MARKETING PLAN ... 15
4.1 Mission ... 15
4.2 Analysis ... 15
4.2.1 Internal ... 17
4.2.2 External ... 19
4.2.3 SWOT ... 22
4.3 Marketing Strategy ... 24
4.3.1 Segmentation ... 26
4.3.2 Targeting ... 27
4.3.3 Positioning ... 29
4.4 Marketing mix ... 31
4.4.1 Product ... 32
4.4.2 Price ... 33
4.4.3 Place ... 36
4.4.4 Promotion ... 37
4.5 Control ... 42
5. PURPOSE OF THE STUDY AND CONCEPTUAL FRAMEWORK ... 44
6. RESEARCH METHODS ... 46
6.1 Basic paradigm ... 46
6.2 Data gathering ... 47
6.3 Data analysis ... 47
6.4 Quality assessment of the study ... 48
7. RESEARCH RESULTS ... 49
7.1 Description of case company ... 49
7.2 Survey results ... 49
7.3 Mission ... 59
7.4 Analysis ... 59
7.4.1 Internal ... 59
7.4.2 External ... 61
7.4.3 SWOT ... 64
7.5 Marketing Strategy ... 64
7.5.1 Segmentation ... 65
7.5.2 Targeting ... 65
7.5.3 Positioning ... 65
7.6 Marketing mix ... 66
7.6.1 Product ... 66
7.6.2 Price ... 67
7.6.3 Place ... 67
7.6.4 Promotion ... 67
7.7 Control ... 68
8. CONCLUSIONS AND RECOMMENDATIONS ... 69
8.1 Conclusion ... 69
8.2 Recommendations ... 70 BIBLIOGRAPHY
APPENDIX
1. INTRODUCTION
The idea for this bachelor’s thesis started to develop when discussing with the owner of Mr. Jones Bar & Kitchen. These discussions brought up the fact that Mr. Jones Bar & Kitchen was expanding and new facilities for meetings and conferences were being built in the downstairs of the restaurant. The idea presented itself when the discussion moved toward how Rauma is becoming a more and more international town and how Mr. Jones Bar & Kitchen has developed into a meeting point for all the foreign people living in Rauma. This led to the idea of how to improve the service concept for these international clients.
The Purpose of the thesis was to analyze main competitors and interview the ten biggest international companies in the Rauma area. Based on the information from the analysis of the interviews make conclusions, recommendations and create a successful marketing plan for the case company Mr. Jones Bar & Kitchen. In the theoretical part all the steps of creating a successful marketing plan and some differences in cultural differences were explained carefully. Based on the theory it was easier to start creating the steps for the empirical part. The analyses of the theme interviews were done by using the qualitative method.
The subject of the thesis was very interesting and information about the subject was not so hard to found. A positive fact also was that the interviews were relatively easy to organize and most of the representatives of the companies were very talkative and knew the needed information. This fact also showed that the semi structured theme interview was the best way to make the interviews. The cooperation with Mr. Jones Bar & Kitchen staff was very productive and they were with us every step of the way which made the actual work much easier.
2. CULTURAL DIFFERENCIES IN MARKETING
In marketing for international customers the company must take into consideration all the cultural aspects involved. Most marketing concepts and practises were originally developed in the USA and therefore they are very “American”. European countries have started to adopt these concepts and trough that they have changed.
With a more and more interdependent world where barriers to trade and to international exchanges are constantly getting smaller, cultural differences is the single most important feature that has to be taken into consideration when planning a market strategy. Culture can be defined as the whole of assets composed of total moral features of society, emotions and thread of mind, of all sorts of life, thought and art in the state of tradition. The company should develop a plan for handling cultural diversity in order to avoid making any big cultural clashes with their customers. (Usunier, 1993, 11-15; Usunier, 2000, 1-3; Seymen, 2006, 296-315) Consumer behaviour has four major cultural variations in addition to the universal components of it. These four can be listed as follows: Hierarchy of needs, Culture based values, institutions that give influence, and influence trough cultural variations in the personal factors of consumer behaviour. Culture gives influence to “hierarchy of needs” on two basic levels. The first one means that the basic idea in Maslow’s theory is not always true (one need must be satisfied before the next need can appear) the second one is that similar kinds of needs may be satisfied by very different products and consumption types. Culture based values refer to individualism versus collectivism. Many cultures have a very distinguishing grouping in which an individual belongs in. Various authors within the field of cross-cultural marketing have pointed out the role of the group as an organic entity, as opposed to a casual collection of individuals who share info and some common interests and constraints, living together within the family unit. This has the biggest meaning in Asia. For example in Chinese culture people may seem very much like individuals but they are still very strongly bound by their families and that has a strong influence in the buying decision. This is one fact that needs to be taken into consideration in making a marketing strategy. The state, the church, and trade unions are institutions that influence consumer behaviour greatly and have an effect on the marketing
environment. It is clear that some products have a strong dependence on culture, whatever their mode or of distribution or consumption. An example can be that the French Catholic Church has been against Sunday trading and there for it has an enormous influence on the marketing environment. Eating habits are probably the best example of this because nothing is more essential, more universal and at the same time more accurately defined by culture than are eating habits. Eating habits need to be viewed as a whole including the entire process of going somewhere and dining and the setting. When consumers are loyal they repeat their purchases on regular basis and always buy the same brand. Loyal consumers prefer to be sure what they buy and with doing this they also reduce their opportunity to find other, and perhaps better , choices which could possibly give them more value for their money.
Disloyal customers tend to shift from product to another trying new brands and taking advantage of possible special promotions. In different cultures loyalty and disloyalty play key roles in consumer behaviour and buying behaviour. (Usunier, 1993, 11-19)
Culture and cross-cultural differences can bee seen in a variety of human interactions. These include but are not limited to language, religion, nonverbal communications, time, space, colour, numbers, manners and customs, aesthetics, and food preferences. Any of these interactions can be seen as possible pitfalls for the unwary and careless marketer. In languages around the world there are many words that sound similar with a totally different meaning and this can cause uncomfortable situations and misunderstandings. Marketers should always be careful when using translations to avoid embarrassing situations. Most Cultures are also very proud of their native tongue and this should be taken in to consideration when creating the marketing plan. Nonverbal communication includes all the actions taken without spoken words. It can be anything from facial expressions to gestures to general body language. Gestures in particular have different meanings in different cultures and these should be used with caution. Dressing appropriate for the occasion also falls into the category of nonverbal communication. Religion obviously plays a big role in creating an intercultural and international marketing plan. Religious beliefs can influence an everyday thing like going to lunch (Beef taboo for Hindus or pork taboo for Jews). The concept of time is also very different in cultures across the world.
Where as the American expects the meeting to begin and end on time with a tight
agenda discussed, Latins typically arrive late and the discussion in the meeting flows from topic to another and keep the meetings longer than the scheduled time. Arriving late in a meeting can be a cause for the other party to take it as an insult. Space, meaning the distance between people in interaction can be a problem in intercultural negotiations if not carefully considered. Where the American feels comfortable with a distance of three feet (and little touching), Mexicans, Italians, and Arab men tend to get extremely close to their counterparts. Latin cultures are also known to communicate trough hand gestures, physical contact and emotional expressions.
Different colours also represent different things in many cultures. In most parts of Asia white is seen as the colour of death and therefore it should be avoided when dealing with Cultures from that part of the world. In Japan and China grey is associated with cheap and inexpensive products when on the other hand in the United States, grey represents expense in addition to high quality and dependability.
Numbers also have different meanings and assumptions in many cultures. A number can represent luck in some culture and in another the same number can be associated with death. The way to write dates is also different in some cultures. An American writes first of July 2007, 07/01/07 where as a European writes it 01/07/07. Humour can also be a powerful tool in marketing but it is not considered to be appropriate in all cultures. After language and religion food preferences are the most culturally sensitive and grounded topic. Different cultures have their own ways of eating in almost every meal of the day. For example Finnish people eat bred with cheese and meat for breakfast where as the Japanese breakfast is usually rice based.
(Onkvisit & Shaw, 1997, 208-217; Herbig, 1998, 15-28)
3. PRODUCT ADAPTATION
In analyzing product strategy, it is important to realize that the willingness to try new product differs between consumers. Different types of consumers are adapting the new product in different stages of the product’s life cycle. The consumers have been divided in five different categories of adopters, these categories are innovators, early adopters, early majority, late majority and laggards. Innovators consists from 3-5%
of consumers and they are the venturous and risk taking consumers. Early adopters consist from 10-15% of consumers and they are respectable and they often influence the early majority. Early majority consists from 34% of consumers and they are avoiding risks and are deliberate in their purchases. Late majority consists from 34%
of consumers and they are skeptical and cautious about new ideas. Laggards consist from 5-16% and they are very traditional and set in their ways.
The innovators are thought to be particularly important while creating product strategies, because innovators may influence to early adopters, who in turn may influence the early majority to purchase. The consumers from other categories will hear about the new product from innovators and can learn vicariously about the product by seeing the innovators to use the product. This all has caused that the major focus of consumer research has been on identifying the characteristics of innovators and the differences of innovators and the consumers from other categories of adopters. Research has found that the innovators tend to be more highly educated, younger, have greater social mobility, more favorable attitudes towards risks, greater social participation and higher opinion leadership than other consumers. Innovators are also heavy users of other products within a product class. The innovators may have better developed knowledge structures for particular products categories, which may enable them to understand and evaluate new products more rapidly and that way innovators can adopt the product earlier than other consumers.
Nowadays when everything is getting more international and it seems that the world is shrinking, it is important for the companies to be able to adapt their products to meet local conditions and tastes. Same product or strategy will not be successful in all over the world and that is why product adaptation is coming more important part
in creating strategy. The adaptation cannot just stop on the product adaptation, adjustments have to be done also to the rest of the marketing mix, which are price, place (distribution) and promotion. These all need to be tuned to local purses, customs and market structures as well. It is obvious that the companies have to also be careful that they do not go too local and this way cause overadaptation and lead to failure. (Peter, Olson & Grunert, 1999, 358-361; Backman, 2002, 210-218)
The adoption of products by consumers can be effected by how the product concept conflicts with norms, value and behavior patterns and also by its physical or mechanical attributes. When the product adaptation analyses are done for second market, the extent of adaptation required depends on cultural differences in product use and perception between the original market of the product and the new market.
The bigger these cultural differences between the two markets are, the bigger the extent of adaptation is needed.
The first step in product adaptation to a foreign market is to determine the degree of newness perceived by the intended market. The company has to evaluate how the new market reacts to newness of a product. The company has to also be aware that a successful product that has already reached the maturity or decline stage in their life cycle in Western countries may be perceived as a new product in another country or culture and that way it has to be treated as innovations. That is why the new product will need different type of marketing strategy than the mature one that is already in use. Whether the new market accepts the new product or not and how much time will the acceptance need, depends from the products characteristics. The goal of product adaptation to foreign markets is to gain product acceptance by the largest number of consumers in the market, in the shortest span of time. However, new products are not often readily accepted by the culture or new markets and will meet resistance. That is one reason why the timeframe of the planning has critical importance. The company can never know for sure how long does it take or will the product ever be accepted in the new markets.
There are various degrees of newness, which categorize all new products that are perceived by the market. Within each of these categories, myriad reactions affect the rate of diffusion. These can be divided to four categories, which would be congruent
innovations, continuous innovations, dynamically continuous innovations and discontinuous innovations. A congruent innovation is actually not an innovation at all because it causes absolutely no disruption of established consumption patterns.
The product concept is already accepted by the culture and the innovativeness is one of the introducing variety and quality or functional features, style or an exact duplicate of an already existing product. Exacting might be necessary because the market perceives no newness. A continuous innovation has the least disruptive influence on established consumption patterns. Adaptation of the existing product is almost always the number one option, rather than creation of new product. This will always result in better use patterns, because of the perceived improvement in the satisfaction derived from its use.
A dynamically continuous innovation has more disruptive effects than in the previous ones, although it generally does not involve new consumption patterns. This can mean either creation of new product or making considerable changes of an existing one designed to fulfill new needs arising from changes in lifestyles or new expectations brought about by change. It is generally disruptive and therefore resisted because old behavior patterns must change if consumers are to accept and perceive the value of the dynamically continuous innovation. A discontinuous innovation involves the establishment of new consumption pattern and the creation of completely new product. It introduces an idea or behavior pattern where there was none before. Each innovation has characteristics by which it can be described and each person’s perception of these characteristics can be utilized in explaining the differences in perceived newness of an innovation. These attributes can also be utilized in predicting the rate of adoption and the adjustment of these attributes or product adaptation can actually lead to a changes in consumer perception and thus to altered rated of diffusion.
The product adaptation to a new market can consist from simple package changes to a total redesigning of the physical core product. Some of the needed changes are obvious with relatively small analysis and some are much harder to find out. The legal, economic, technological and climate requirements of the local marketplace often dictate product adaptation. The less economically developed the new market is, the greater degree of change a product may need for acceptance. Substantial
adaptation of product can still be needed even if there are only few cultural differences between the markets, this is because the product might be in different stage of its life cycle in each market. This is because product life cycle and marketing mix are interrelated, which causes that successful product in maturity stage in other markets can have unwanted or unknown attributes in the market where it is perceived as a new product.
While adapting a product to the new market, there has to be made careful screening to be able to determine if there are cultural resistances to overcome and physical or mandatory changes necessary for product acceptance. The decisions for adaptation cannot be made before psychological and physical dimensions of the product, as determined by the country market are known. Products can be screened on two different bases by using, the analysis of characteristics of innovations, to determine if there are cultural-perceptual reasons why a product will be better accepted if adapted.
The other way is to use, analysis of product components, to determine if there are mandatory or physical reasons why a product have to be adapted. (Backman, 2002, 210-218; Cateora, Graham & Ghauri, 2000, 295-309)
4. MARKETING PLAN
4.1 Mission
Every revolution and plan starts with a vision, and the hard part is to actually turn the vision into reality. A mission statement is something that most companies and organizations have in order to identify an explicit or implicit corporate mission, corporate goals and strategies, and some functional strategies. Companies usually start with a clear mission that comes from the mind of the company founder. Over a period of time the mission often fades as development, new products, and new markets are added to the company. A clear mission statement gives direction and continuity for the company by objectively stating the broad parameters within which the organization is operating and is seeking to develop and grow. A mission statement also provides guidelines for establishing a corporate culture for the organization in question. Companies often have different emphasizes in their mission statements, depending on their selected area of focus. Examples of different emphasizes include: customers, products and services, markets served, and technology. (Bradley, 1995, 76-77; Kotler, Armstrong, Saunders & Wong, 2001, 77- 78; Peppers & Rogers, 2001, 227-228)
4.2 Analysis
Analysis is the part that provides the input for strategic choices. The first steps that has to be executed while developing a marketing plan for the company is the analysis of the current situation where the company is standing. This covers the internal and external analysis and of course the SWOT analysis. The company has to analyze what is going on inside the company and based on the analysis the company can see what should be done differently, what should be improved and what are the company’s strengths. The company has to do the external analysis in order to be able to analyse the overall situation outside the organization. This will help the company to detect the trends and changes for example in economics, technology, politics and ecology. Of course it also includes the analysis of customers, competitors, suppliers,
distributors, partners and other key stakeholders and this way to be able to know how these influences to the company’s ability to implement the marketing plan. This way the company is able to get clearer picture about their own and competitor’s strengths and weaknesses and that what could probably be the opportunities and threats in the near future.
Figure 1: The microenvironment and macroenvironment (Wood, 2003, 21)
The main factors of internal, external and SWOT analysis are mentioned in figure 1 above. The inner circle mentions the key factors that are taken into consideration while analyzing the company’s internal environment. These factors are employees, customers, competitors, suppliers, channel members and partners. The internal environment analysis is basically the analysis of the controllable forces and it basically determines the strengths and weaknesses, which will be dealt in SWOT analysis. In the outer circle are the factors that are taken into consideration while analyzing the external environment. These main factors are demographic forces, economic forces, ecological forces, technological forces, political-legal forces and social-cultural forces. This external environment analysis is basically the analysis of the uncontrollable forces and these are determining the opportunities and threats part of the SWOT analysis. (Wood, 2003, 5-8; Donaldson & O’Toole, 2002, 62-64)
4.2.1 Internal
The whole process begins with the performance review, where the company’s own results will be dealt on the dimension that the company determines what is important and is linked with the set goals. The Internal analysis starts by analyzing the company’s overall mission and it also analyzes organization’s resources, offerings, previous results, business relationships, keys to success and warning signs. It will help the company to realize where they are actually standing and what are their actual strengths and weaknesses. This way they can see what should be done better and what things can be left as the way those are.
The analyses of the mission will help the company to make decisions about which are the most appropriate actions for the company. By analyzing the mission the company will understand better their fundamental purposes, core ideology, defines its focus, indicates how it will add value for customers and other stakeholders and outlines what are the future plans. The analysis will deal with the company’s structure, resources and culture. The structure analysis will be dealing with the activities, processes, relationships and especially with performance results. The organizational culture analysis will be dealing with pace, focus, aggressiveness in competition, community involvement, entrepreneurship, risk taking and management style in decision making.
Next step is to start analysis of resources. This will give the company a clear picture about the resources their organization has or can have. This includes human, financial, informational and supply resources. It is really important to be able to successfully divide the limited resources between all the objectives and goals.
Human resources analysis will give the needed information about is the workforce having enough skills, is the management actually supporting the mission/goal as much as needed. The company will also get information about, is the company preparing for the future by recruiting and training personnel, is the morale in the company in a good level and is the actual turnover in the boundaries that the company has set. Analysis of financial resources will tell if the company have enough capital in use and from where they should cut resources and to where they should increase resources. Analysis of informational resources helps the company to
realize if they actually have all the data that is needed and what informational sources they can use to support their planning, implementation and control. Supply resources analysis will give the company the needed information about do they have steady supplies of parts, components, materials and services to be able to operate and produce with manageable costs. It also tells that are the suppliers committed to the company and to its mission.
In offerings analysis the company will be dealing with the products and services that they are currently offering. The analysis should include the products/services sold, the price level and to which customers are those aimed for. They also have to analyze the age of the products, how have the trends changed during the years and how the newer and older product succeeding, while comparing it. This also demands the analysis of each products place in the life cycle and how could the life cycle be extended.
Analysis of previous results will give the company important clues about their internal strengths and weaknesses, which can affect to current and future results. The company has to analyze their last year’s financial results, including sales and profits and compare these results to the trends of several years before. Analysis should be done to the results of previous years’ marketing programs, because it will tell to the company which one has worked and which has not worked. The analysis will also be done to the costs related to customer acquisition and retention and based on this take can make conclusions about what should be done to improve these.
Business relationship analysis should concern suppliers, distributors and partners and it should determine whether changes are needed or not to be even more successful in the future. Even if the costs of relationships are critical, those are not the only factors that need to be analyzed. While doing decisions those should be also based on the abilities of suppliers and distributors to increase their volume when needed, are they able to maintain the quality level and are they actually helping the company to add value and satisfy customers. Of course the company has to also analyze the change of supplier over time and that how dependent they actually are from one supplier.
Keys to success and warning signs analysis will give the company ideas that which are actually the key issues that they have to consider, because everything cannot be equally important. Analyzing which are the key factors and then putting more effort on improving these, the company can easier reach their goal and improve its results.
By knowing which the key factors are, can help the marketers to pinpointing and focusing on these success factors. It is as important to know which the possible warning signs are for the company. Knowing these will help the company to be able to eliminate these possible warning signs. (Wood, 2003, 23-27; Formisano, 2003, 60- 63; O’Conor, 2000, 41-48)
4.2.2 External
Detailed analysis of market situation currently is fundamental for the company. The external analysis will give the company a clear picture about the external environment. It will give to the company ideas about how the external environment actually constrains what the company should do. This can also lead the company to realize what should be done, there can for example be new legislations coming and the company can prepare themselves for this beforehand. External analysis can also give the company chances to find out which are the possibilities and opportunities in their business area in the future and at the same time give ideas which might be the threats and problems in the future. (Trott, 2002, 176-177)
In the external analysis the company should cover the macroenvironment which consists of demographic, economic, ecological, technological, political-legal and social-cultural trends. The company should cover in their analysis the strategies and movements of their competitors and the changes in markets and customers as well.
Analysis of external environment is designed to uncover opportunities and threats that the company will encounter in the future and this way give the company best chances to be able to succeed in the changing and developing world. (Jobber & Fahy, 2003, 276-277; Wood, 2003, 27)
Demographics trends are divided into two parts, consumer demographics and business demographics. Consumer demographics deal with the changes in amounts
of population in the area the company is operating and with the composition of consumer population. The composition of population means the changes in age, gender, ethnic and religious makeup, education, occupation, household size and income. Consumer demographic trends analysis will help the company to prepare themselves for these changes.
Economic trends analyses are really important, because these have a huge influence to consumers and businesses buying behaviour. Nowadays when the whole global economy is more or less connected together, the changes in some parts of the world will immediately effect to other parts of the world too. This means that the analysis has to be done also globally and not just locally, regionally and nationally even if those are important to analyze too. By analyzing these all, the company is more likely to be able to see signals of possible changes in the future. Income, dept and credit usage should be also analyzed, so the company would be able to understand the actual buying power of consumers.
Ecological trends should be analyzed carefully too, because changes in natural environment can influence to businesses in various ways. Ecological trends analyses will give the company a picture about the availability of raw materials and availability of energy resources. Some other environmental issues have to be analyzed because these can affect to the company while government changes or creates new regulations and because the social attitudes can be changing time to time. Right now the key issues in this area are the pollution and the changes towards more green. (Wood, 2003, 27-31)
Technological trends analyses are the key issues in the fast developing and changing world. These changes can easily cause either opportunities or threats to the company.
Main players in technological trends are rapidly increasing usage of internet and PC all around world, the convergence of computer and media technology and incorporation of electronic capabilities into a wider range of products. Internet itself has caused huge number of opportunities from online retailing to infrastructure equipment and numerous threats like security problems from viruses and stolen data as well. While analyzing the technological changes, advices can be asked from government agencies, research centres, consultants and universities. The analysis
will give the company an opportunity to prepare for the future technological changes and ideas about new innovations. (Trott, 2002, 176-177; Wood, 2003, 32)
Political-legal trends analysis has to be executed for the legal and regulatory guidelines that govern different business and marketing practices. These laws and regulations can cover for example competitive behaviour, pricing, taxation, promotion, distribution, product liability, labelling and product purity. Analysis can also give signals of changes in legal and regulatory priorities for the company. This will help them to recognize the possible threats and opportunities. Companies that operate globally have to execute these analyses in every place where they operate, because the rules, regulations and laws change a lot between different countries.
Without executing political-legal trend analysis, the company might encounter huge problems in some country.
Social-cultural trends analysis mainly concerns how the increased diversity in markets and in the workforce affects to marketing. This has to be considered because the knowledge about for example of the target groups nation of origin and primary language will help the company to target messages and offers for exact group. One other issue that can affect to the company and their plans are the attitudes toward ethical and social responsibility issues, influences by core believes and values. These changing attitudes can cause opportunities and threats to the company. One example could be that while people are getting more interested in healthier lifestyle, it gives opportunities to sport and health related products and it causes threats for cigarettes selling firms. (Wood, 2003, 32-33)
Competitor analysis will help the company to understand better the market dynamics, predict what the competitors are going to do and to create more practical marketing plans. The company should also analyze which are the main competitive advantages of each competitor and this way get better changes to compete against them and against their competitive advantages. Possible changes in the competitive structure should be analyzed too. This will help the company to realize if there are major changes coming and this way the company can prepare for these changes beforehand.
These major changes can be for example new innovations in the area, new entrants from abroad or from different industry and fast changes in pricing level. This
competitive analysis will also help the company to determine which of the Porter’s generic competitive strategies is the most suitable for the company. Cost leadership strategy is for companies that can get the lowest cost while producing and this way are able to offer cheapest price for customers. Differentiation strategy is for companies whose products or services will differ from other competitors and that way gives them new possibilities. Focus strategy is for companies which are able to narrow their competitive scope to achieve a competitive advantage in the chosen segments. (Trott, 2002, 176-177; Wood, 2003, 34-35)
Market analysis starts with determining the company’s actual market, this is because no company can afford to satisfy every market in the world. Analysis will determine to the company what are the characteristics and actual needs of the market. It also gives the company ideas about the requirement, behaviour and attitudes of customers in the marketplace. These analyses will also tell to the company which are potential market, available market, qualified available market, served or target market and penetrated market for them.
Customer analysis will be dealing with customer’s needs, buying behaviour and attitudes of the consumers or business customers in their general markets. This will help the company to realize whether the customers for example becoming more demanding, or starting to look the price more than the quality and tell them to which markets and segments within markets they should actually target their products or services. This analysis will help the company to decide what marketing strategies and tactics are the best ones to satisfy their customer and still gain profits. (Trott, 2002, 176-177; Wood, 2003, 43-46)
4.2.3 SWOT
SWOT analysis is one main planning tool and its goal is to examine the strengths, weaknesses, opportunities and threats of the company. It gives good information about where is the company actually standing and which are the main issues they have to improve to be able to succeed better and which are the strengths that the company can rely on. It also gives some hints about what might happen in the future
and this gives the company changes to prepare for changes in future. It helps them to get better ability to answer for the future opportunities and threats that will eventually occur in fast developing world.
Every good SWOT analysis includes several distinguishing characteristics. First the analysis has to be honest, it does not help the company at all if the analysis does not include all the facts. The point of the analysis is not to make the company look good, because this way nothing would change and this would eventually cause problems in the future. Second, the analysis has to be broad. It does not give whole picture if the analysis is just done in the company’s market area. Analysis should look especially opportunities and threats from outside the market area too, this way they are able to get wider picture what are the possible changes in the future and what are the issues the company should be prepared. Third, the analysis has to also consider multiple time horizons. There comes all the time new transportation methods and people are changing their habits for example more green products, which has to be taken in to consideration. It is mentioned that the analysis should be done for different groups of people, because the SWOT analysis is built on perceptions of the firm. The broader picture they are able to get, the better is the results of the analysis. (Dwyer & Tanner, 2002, 170-174)
The strengths and weaknesses do not list all the features of the company, they are only considering the critical success factors. Otherwise the list would be too long and the important factors could be lost. It is important that these critical factors are actually based on facts and it has to be considered that even if something is considered as strength, if the competition is stronger it can also be a weakness.
Strengths and weaknesses are easier to find than the opportunities and threats which are important for the development of the company. Strengths and weaknesses are not so easy to predict and the factors change a lot in different businesses. Analysis and the factors should always be divided on absolute and relative strengths and weaknesses. Relative strengths provide the distinctive competence of a business. The absolute weakness that competitors also have should be identified, because it can easily become a source of relative strength which can be used to overcome the competitor. While evaluating strengths and weaknesses the company should realize that only the resources that would be valued by the customers should be taken into
consideration. The opportunities and threats should be divided to anticipated events and to trends outside the business that have implications for the performance. (Kotler
& all, 2001, 81-85; Jobber & all, 2003, 281-282; Megginson, Byrd & Megginson, 2003, 97-100)
4.3 Marketing Strategy
Target consumers/customers are the basis and centre of the marketing strategy. The total market is identified and divided into smaller segments by the company. This is followed by selection of the most promising segments and focusing on serving them.
The company designs a marketing mix using mechanisms under its control: product, price, place, and promotion. The next step is to engage in marketing analysis, planning, implementation and control to point out the best marketing mix and to take action according to it. These activities are used to enable the company to watch and adapt to the marketing environment.
The strategic plan consists of several different components: the mission, the strategic objectives, the strategic audit, SWOT analysis, portfolio analysis, objectives and strategies, all of which feed from and feed into marketing plans.
Strategy development is a crucial part in launching a new product or creating a new marketing plan for an already existing product. New product strategy is a combination of different strategies within the company. New product strategy mainly derives its objectives from, marketing strategy, technology strategy, and the overall corporate strategy. These provide the context, the role, the impetus and the definition of the scope of new product strategy.
Segmentation
Select the market
Select the segmentation approach
Assess and select segments for targeting
Figure 2: Segmentation, targeting, and positioning, adapted from figure 9.1: six steps in market segmentation, targeting and positioning from Kotler’s Principles of marketing (Kotler, 2001, 316)
The figure 2 above shows how segmentation lays the foundation for targeting, decisions about which market segments to enter and the segment coverage strategy to use. It gives the reader the basic facts that are needed to understand all three steps. In the following section of segmentation, targeting, and positioning are discussed more thoroughly. (Trott, 2002, 354-355; Kotler & all, 2001, 77-78, 91-93)
Segmentation
Select the market
Select the segmentation approach
Assess and select segments for targeting
Targeting
Select number and priority of segments for entry
Select segment coverage strategy
Positioning
Select meaningful attributes for differentiation
Apply positioning through marketing strategy and tactics
4.3.1 Segmentation
Segmentation is a very important tool of marketing planning because it enables the marketing departments to focus their resources on the most promising opportunities.
Getting to know your segment customers well and therefore understand exactly what they want and need, gives the marketing department better efficiency and effectiveness in their marketing efforts. Customer intimacy created trough segmentation also enables the company to identify changes in the segment and act fast in response to these changes. Segmentation also helps companies to select the segments where only limited number of competitors are active or where their closest rivals are not competing. Segmentation involves subdiving markets, channels or customers into groups with different needs, to deliver tailored propositions which meet these needs more precisely. (Wood, 2003, 9, 54; Davidson, 1997, 335-340) After careful planning and forecasting the next decision in the company is to decide how to enter the market. Any market is a combination of different types of products, customers, and needs. Companies marketing department is faced with a decision of determining the best segments that offer the opportunity for achieving company objectives set prior to this. Consumers can be grouped into various different categories based on geographic factors, which are countries, regions, cities, on demographic factors, which are sex, age, income, education, on psychographic factors, which are social classes, lifestyles, and on behavioural factors, which are purchase occasions, benefits sought, and usage rates.
Geographic segmentation means that the market has to be divided into different geographical units, such as nations, states, regions, counties, cities, or neighbourhoods. It is a choice made in the marketing department whether to operate in one or a few geographical areas, or to operate in all areas but to give focus to geographical differences in wants and needs. One key factor in geographical segmentation is the language spoken in a certain area. Demographic segmentation is a term where the market is divided into groups based on variables such as age, gender, sexual orientation, family size, family life cycle, income, occupation, religion, nationality, education, and ethnic community. The most popular bases for segmenting customer groups are those of demographic. A big reason for this is that
demographic variables are easier to measure compared to most other variables.
Another reason for this is that consumer needs, wants and usage rates often vary closely with demographic variables. Geodemographics is a method of segmentation that is used more and more. It is the study of the relationship between demographics and geographical location. Geodemographics is based on comparing databases and other info. Psychographic segmentation is a tool for dividing groups based on lifestyle, social class or personality characteristics. Psychographic make-ups within the same demographic group can vary a lot. Behavioural segmentation puts buyers into groups based on personal experience, knowledge, attitudes, uses or responses to a product. A lot of marketers consider the behavioural variables as the starting point for creating market segments. Buyers can also be grouped according to occasions when they get the idea to buy, make the purchase or use the purchased item. Another good form of segmentation is to group buyers according to the different benefits they seek from the product. The market can also be segmented on the basis usage rate.
This means that the people are grouped into light, medium, and heavy-user groups.
(Kotler & all, 2001, 315-346; Megginson & all, 2003, 172)
4.3.2 Targeting
Targeting is process where the attractiveness of each market segment is evaluated and one or more segments are selected. The segments that should be targeted are the ones where the company has a differential advantage over its competitors and where it can generate the greatest customer value and sustain it. The company should first evaluate all the data available to find the most attractive market for them. Some segments might seem to have the right size and the right growth characteristics but still might not be the most profitable ones. Smaller companies might find some segments too big due to lack of resources and skills or the competition in these segments is just too big. The relative power of buyers and the relative power of suppliers also affect the attractiveness of the segment. If buyers in a segment have strong or increasing bargaining power relative to sellers, they will try to lower prices, demanding more quality or service, and setting competitors against one another.
When suppliers of raw materials, equipment, labour and services in the segment are
powerful enough to raise prices or reduce the quality or quantity of ordered goods or services, it also makes the segment less attractive.
When selecting the segment/segments to serve, the company should carefully consider and evaluate its long term plans and goals. Some segments might seem very attractive but divert the company’s attentions and energies away from the main goals.
After careful evaluation of different segments the company needs to select the segment or segments to serve. This in other words means selecting the target market.
A target market can be defined as the set of buyers who share common needs or characteristics the company decides to serve. There are three different market- coverage strategies to choose from when selecting the target market. These three are:
undifferentiated marketing, differentiated marketing, and concentrated marketing.
Undifferentiated marketing is a market-coverage strategy where the market segment differences are ignored and the whole market is pursued trough one offer. In this the product and marketing programme is designed to appeal to the biggest number of buyers and it relies on mass distribution, mass advertising, and quality to give the product a superior image in people’s heads. The advertising and promotion concentrates on product features and tries to avoid alienating any segments.
Undifferentiated marketing also gives the company some cost economies.
Production, inventory, and transportation costs stay low due to the narrow product line. Advertising costs are low and the lack of segment marketing research and planning lowers the cost of product management and market research.
Differentiated marketing is a marketing-coverage strategy where several different market segments are targeted and a separate offer is created for each one. It can be seen as “something for everyone” strategy. By offering different products and marketing variations the company aims for higher sales and stronger position in all off its segments. A strong position in several segments can also give the company stronger consumer identification, also leading to better repeat buying because the company’s offer better matches the customer’s desire.
Concentrated marketing is the third market-coverage strategy. When a company has limited resources concentrated marketing is the most appealing of all three. In
concentrated marketing the company targets a large share of one or a few submarkets, instead of going for a small chunk of a large market. When choosing concentrated marketing a company has to have great deal of knowledge on the segments and a specialist reputation, in order to achieve a strong market position in the segments(niches) chosen. Niches: meaning smaller segments with distinct needs or benefit requirements can often be identified within a large segment. Over time these small niches can grow into larger segments as many companies have found out.
Concentrated marketing can also involve higher risks due to the nature of the segments. (Kotler & all, 2001, 95, 341-346; Bly, 1998, 99-119)
4.3.3 Positioning
The third step in creating an effective marketing strategy is to clearly position a product or service offering in the market. Positioning is a combination of choosing the right target market and achieving a differential advantage. In simple terms it means choosing where and how we wish to compete. Choosing the right target market is already taken care of the first part of positioning but providing a differential advantage is the second important thing in positioning. When trying to provide the customer with a differential advantage the company needs to give the target customer something better and different compared to what the competition is offering. The marketing mix is used to create something different for the customer.
There are four major factors of differentiation. These include: product, promotional, distribution- and price differentiation. Product differentiation can be achieved from adding special features that the competition cannot match. Promotional differentiation can be a result of superior service provided by salespeople or a creation of unique, valued images by advertising. Making the buying situation more convenient for the customers can be the source of distribution differentiation. Finally, price differentiation can be achieved by giving superior value for money through lower prices.
For successful positioning there are four key factors to consider. These four key factors are clarity, consistency, credibility, and competitiveness. These key factors can be seen in the figure 3 below. Clarity means that the idea has to be perfectly
clear, both in terms of target market and differential advantage. Positioning statements need to be very clear because complicated ones are very unlikely to be remembered by the target customer. People are targeted with messages and noise every day that is why a consistent message is needed to break through this noise.
Positioning also needs to be consistent trough out the years in order to avoid confusion with the customers. When selecting the differential advantage the company needs to keep in mind that the differential advantage must be credible in the minds of target customers. The fourth factor is competitiveness. Competitiveness in this concept means that the selected differential advantage has to have a competitive edge and it should offer something of value to the customer that the competitor cannot provide.
Figure 3: Keys to successful positioning (Jobber & all, 2003, 116)
Sometimes perhaps due to changes in customer taste or poor sales performance, a product or service needs to be repositioned. Repositioning involves changing the differential advantage, target markets or both. One option is to change the image of the product while keeping the same product and target market. Another option is to keep the product and image unchanged and changes the market segment it is aimed at. (Jobber & all, 2003, 116-118)
4.4 Marketing mix
Developing the details of marketing mix is the next step after the company has chosen its overall competitive marketing strategy. The main goal of marketing mix is to set the controllable tactical marketing tools for the company, which helps the company to get the wanted response from the target markets. The marketing mix consists of all the factors that will influence to the demand of the company’s products. The key issue in marketing mix is to be able to blend various factors in a way that it attains the objectives of the company and the target markets. The most known factors are the four P’s: product, price, place and promotion. There are still mentioned other P’s in different sources too and the most known ones after these four are process, productivity and quality, people and physical evidence. An effective marketing mix comes from four factors. First it has to match the needs of the target group. Second, it has to be able to create a competitive advantage against the competitors. Third, the marketing mix has to match the available resources of the company. Fourth, the marketing mix should be well blended to form a consistent theme.
Variety Advertising List price Channels Quality Promotions Discounts Coverage Design Personal selling Allowances Assortments Features Publicity Payment period Locations Brand name Credit terms Inventory
Packaging Transport
Services Warranties
Figure 4: the four P’s: the marketing mix (Kotler & all, 2001, 98) Marketing mix
Product Promotion Price Place
Target market
In the figure 4 above can be seen the main four P’s of marketing mix and the key factors of each one of these four P’s that influence to the target market. The key elements for each product, price, place and promotion will be explained more accurately on the next chapters. These all are the key issues that has to be blended in a way that it attains the objectives of the company and the target markets. This way the marketing mix is developed so that it will satisfy the organization and customers as the best way it is possible. (Kotler & all, 2001, 97-98; Jobber& all, 2003, 10-11;
Hatten, 1997, 265)
4.4.1 Product
Product means all the services and products that the company is offering to the target markets. This is the most obvious element of the marketing mix. The customer decisions will be made based on the range, style and presentation of the product.
These all three dimensions offer benefits for the customers, like is shown in the figure 5 below. Functional element shows what does the product actually do and that way makes the customers with actual need to buy the product. The physical element shows how the product actually looks like and by making the product look as attractive as possible and this way the company makes the customers to want the product. The symbolic element means the image of the product, so the company tries to make to customers to think that while they buy this they can show to other for example that they are rich or environmentally friendly. The physical and symbolic elements have become more and more important in the advanced economies, where customers actually have money and choice to make decisions.
Figure 5: The three dimensions of customer benefits (Hatton, 2000, 178)
Nowadays when the customers have become more and more demanding and the technology and tastes change all the time, new product and service development has become more important. This means that while the products become out of date faster, companies must develop new replacing products all the time to be able to compete with the others. Managers must be able to select the best possible features for the product and for the supplementary service elements around it. This must be done on the way that it will in the best way possible reach all the benefits the customer desire. The term used to describe this kind of product is augmented product. (Hatton, 2000, 177-178; Kotler & all, 2001, 97-98; Lovelock & Wright, 2002, 13-14; Hatten, 1997, 266-269)
4.4.2 Price
Price is the key element of the marketing mix. While other elements represent the costs, this is the only one that represents what does the company actually receives from the product or service. That is why the company has to be clear about their pricing objectives, methods and the factors that actually influence to the price setting.
The company has to also take into account the possible need for discounts and offer
allowance in some transaction. Pricing is a really important part of the competition and the terms of payment can change the customer’s perception, as can discounts, loyalty bonuses and special promotional offers. The tactical use of pricing can be very effective too. The company has to realize who actually sets the prices in their business, what the pricing methods that are being used are and what input does the marketing actually have, and based on these factors they have to be able to set the best possible price. This is the most challenging decision that the company has to make and wrong decisions can ruin the whole company. If the price is set too high, the customers will not buy the product and on the other hand if the price is set too low the company’s costs will not be covered. That is why these decisions are often left to the guardians of the firm’s financial health, to accountants. While price is the only element that will actually bring revenue to the company, the pricing decisions need to be done based on the information from the whole company.
The company has to take into consideration also other than the traditional pricing tasks, they have to seek to minimize all the other costs and burdens that customers may bear in purchasing and using the service. This includes additional financial expenditures, time, mental and physical effort and negative sensory experiences.
These additional financial expenditures can include for example the travelling to the service site and the parking costs in there. These costs together with the actual price are called as the financial outlays. The time expenditures, physical effort, psychological burdens and sensory burdens are called instead as nonfinancial outlays. Time expenditures are the time that the customer has to wait for the service or product. This also involves opportunity cost, because the customer could spend the time in many other ways too. Physical effort includes the possible fatigue, discomfort and occasionally even injury during the visit to the service site or while using company’s self-service equipment. Psychological burdens include mental effort, feelings of inadequacy or fear. These feelings may accompany the tasks of evaluating service alternatives, making selection and then using the chosen service.
Because service outcomes are hard to evaluate, services that are high in experience may create psychological burdens like anxiety to the customer. Sensory burdens is relating to the unpleasant sensations affecting to any of the five senses. These can include noise, unpleasant smell, drafts, bad temperature or light or unpleasant environment or taste.
There are three main pricing strategies, which are cost-based pricing, competition- based pricing and value-based pricing. Cost-based pricing means that the prices are set relative to financial costs. The company has to take into consideration all the costs. Competition-based pricing is basically happening in very competitive environment where the customers can just choose the cheapest product to buy, so the pricing has to be set based on the competitors prices. Value-based pricing includes three strategies, uncertainty reduction, relationship enhancement and cost leadership, which are for capturing and communicating the value of service. Based on one of these the customer will realize that the value of the product for them is so high that they should buy it.
The relationship between price, cost and volume is the one that is causing problems in the price setting. This is because the price will determine the quantity demanded to sell. The total and average costs of the operation are determined by the quantity produced and the cost will determine what price will be charged. One good model to try to examine different pricing options and their impact on the performance is break- even analysis.
Figure 6: Break-even analysis (Hatton, 2000, 181)
